<PAGE> 1
FORM 8-K/A
(AMENDMENT NO. 1)
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): JULY 12, 2000
MRV COMMUNICATIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OR OTHER JURISDICTION OF INCORPORATION)
(COMMISSION FILE NUMBER) (I.R.S. EMPLOYER IDENTIFICATION NO.)
20415 NORDHOFF STREET
CHATSWORTH, CALIFORNIA 91311
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICERS) (ZIP CODE)
818 773-0900
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
N.A.
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
<PAGE> 2
This Form 8-K/A supplements and completes registrant's Form 8-K filed July 27,
2000:
Item 7 Financial Statements and Exhibits
(a) Financial Statements of Business Acquired
The following financial statements of AstroTerra Corporation, are included
herewith:
Report of Independent Public Accountants
Balance Sheets at December 31, 1998 and 1999 (audited) and June 30, 2000
(unaudited)
Statements of Operations for the years ended December 31, 1997, 1998 and
1999 (audited) and the six months ended June 30, 1999 and 2000
(unaudited)
Statements of Stockholders' Equity for the years ended December 31,
1997, 1998 and 1999 (audited) and the six months ended June 30,
1999 and 2000 (unaudited)
Statements of Cash Flows for the years ended December 31, 1997, 1998 and
1999 (audited) and the six months ended June 30, 1999 and 2000
(unaudited)
Notes to Financial Statements
(b) Pro Forma Financial Information
The following pro forma financial information is included herewith:
Unaudited Pro Forma Condensed Consolidated Financial Information
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of June 30,
2000
Unaudited Pro Forma Condensed Consolidated Statement of Operations for
the Six Month Period Ended June 30, 2000
Unaudited Pro Forma Condensed Consolidated Statement of Operations for
the Year Ended December 31, 1999
Notes to Unaudited Pro Forma Condensed Consolidated Financial
Information
<PAGE> 3
Report of Independent Public Accountants
To AstroTerra Corporation:
We have audited the accompanying balance sheets of AstroTerra Corporation (a
California corporation) as of December 31, 1998 and 1999, and the related
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AstroTerra Corporation as of
December 31, 1998 and 1999, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States.
/s/ ARTHUR ANDERSEN LLP
-------------------------
ARTHUR ANDERSEN LLP
San Diego, California
August 24, 2000
<PAGE> 4
ASTROTERRA CORPORATION
Balance Sheets
<TABLE>
<CAPTION>
December 31, June 30,
-------------------------------- ------------
1998 1999 2000
------------ ------------ ------------
(unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 699,567 $ 1,192,250 $ 113,141
Accounts receivable 429,266 559,114 927,928
Inventories 227,588 582,027 1,416,410
Prepaid expenses and other 10,137 64,391 28,641
Refundable and deferred income taxes 37,048 85,567 107,067
------------ ------------ ------------
Total current assets 1,403,606 2,483,349 2,593,187
Property and equipment, net 57,000 300,994 453,875
Other assets 1,000 56,478 51,879
------------ ------------ ------------
Total assets $ 1,461,606 $ 2,840,821 $ 3,098,941
============ ============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 21,012 $ 221,847 $ 234,266
Accrued expenses 286,000 323,287 300,909
Income taxes payable 71,981 -- --
Deferred revenues 17,239 87,376 298,898
Line of credit -- -- 136,000
Non-revolving credit facility -- -- 182,000
------------ ------------ ------------
Total current liabilities 396,232 632,510 1,152,073
------------ ------------ ------------
Commitments and contingencies
Stockholders' equity:
Common stock, 20,000,000 shares authorized;
10,000,000, 10,526,316 and 10,526,316 issued and
outstanding, respectively 647,994 1,689,636 1,689,636
Additional paid-in capital 318,948 3,387,986 12,599,577
Notes receivable from stockholders (30,000) (4,020) --
Deferred compensation -- (1,602,517) (8,659,038)
Retained earnings (accumulated deficit) 128,432 (1,262,774) (3,683,307)
------------ ------------ ------------
Total stockholders' equity 1,065,374 2,208,311 1,946,868
------------ ------------ ------------
Total liabilities and stockholders' equity $ 1,461,606 $ 2,840,821 $ 3,098,941
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 5
ASTROTERRA CORPORATION
Statements of Operations
<TABLE>
<CAPTION>
Years Ended December 31, Six Months Ended June 30,
----------------------------------------------- -----------------------------
1997 1998 1999 1999 2000
----------- ----------- ----------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Products $ 410,481 $ 842,901 $ 1,684,825 $ 630,047 $ 715,757
Contracts 2,441,665 3,284,976 2,966,051 1,331,444 1,958,771
----------- ----------- ----------- ----------- -----------
2,852,146 4,127,877 4,650,876 1,961,491 2,674,528
----------- ----------- ----------- ----------- -----------
Cost of Revenues:
Products 375,749 562,913 1,100,516 423,342 1,280,613
Contracts 1,905,020 2,758,922 3,053,468 1,281,209 1,025,375
----------- ----------- ----------- ----------- -----------
2,280,769 3,321,835 4,153,984 1,704,551 2,305,988
----------- ----------- ----------- ----------- -----------
Gross margin 571,377 806,042 496,892 256,940 368,540
----------- ----------- ----------- ----------- -----------
Operating Expenses:
Selling, general and administrative 222,633 808,450 1,698,027 449,398 1,871,906
Research and development 246,884 108,429 164,566 17,876 923,022
----------- ----------- ----------- ----------- -----------
469,517 916,879 1,862,593 467,274 2,794,928
----------- ----------- ----------- ----------- -----------
Income (loss) from operations 101,860 (110,837) (1,365,701) (210,334) (2,426,388)
Interest Income 534 430 5,835 8,246 12,766
Interest Expense (1,462) (3,247) (259) (152) (6,911)
----------- ----------- ----------- ----------- -----------
Income (loss) before
provision for income
taxes 100,932 (113,654) (1,360,125) (202,240) (2,420,533)
Provision for Income Taxes 36,000 98,056 31,081 89,590 --
----------- ----------- ----------- ----------- -----------
Net Income (loss) $ 64,932 $ (211,710) $(1,391,206) $ (291,830) $(2,420,533)
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 6
ASTROTERRA CORPORATION
Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Notes
Additional Receivable
Common Stock Paid-In From
Shares Amount Capital Stockholders
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, December 31, 1996 7,500,000 $ 76,000 $ -- $ --
Net income -- -- -- --
----------- ----------- ----------- -----------
Balance, December 31, 1997 7,500,000 76,000 -- --
Repurchases of common stock from employees (500,000) (5,000) -- --
Sales of common stock to employees 2,300,000 76,994 -- (30,000)
Sale of common stock to investor 700,000 500,000 -- --
Compensation expense for stock issued to employees -- -- 318,948 --
Net loss -- -- -- --
----------- ----------- ----------- -----------
Balance, December 31, 1998 10,000,000 647,994 318,948 (30,000)
Repurchase of common stock from employees (982,046) (76,205) -- 30,000
Sales of common stock to employees 982,046 117,847 -- (4,020)
Sale of common stock to investor 526,316 1,000,000 -- --
Deferred compensation for stock issued to employees -- -- 3,069,038 --
Amortization of deferred compensation -- -- -- --
Net loss -- -- -- --
----------- ----------- ----------- -----------
Balance, December 31, 1999 10,526,316 1,689,636 3,387,986 (4,020)
The following information is unaudited:
Repurchase of common stock from employees -- -- -- 4,020
Deferred compensation for stock issued to employees -- -- 9,211,591 --
Amortization of deferred compensation -- -- -- --
Net loss -- -- -- --
----------- ----------- ----------- -----------
Balance, June 30, 2000 (unaudited) 10,526,316 $ 1,689,636 $12,599,577 $ --
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Retained
Earnings Total
Deferred (Accumulated Stockholders'
Compensation Deficit) Equity
----------- ----------- -----------
<S> <C> <C> <C>
Balance, December 31, 1996 $ -- $ 275,210 $ 351,210
Net income -- 64,932 64,932
----------- ----------- -----------
Balance, December 31, 1997 -- 340,142 416,142
Repurchases of common stock from employees -- -- (5,000)
Sales of common stock to employees -- -- 46,994
Sale of common stock to investor -- -- 500,000
Compensation expense for stock issued to employees -- -- 318,948
Net loss -- (211,710) (211,710)
----------- ----------- -----------
Balance, December 31, 1998 -- 128,432 1,065,374
Repurchase of common stock from employees -- -- (46,205)
Sales of common stock to employees -- -- 113,827
Sale of common stock to investor -- -- 1,000,000
Compensation expense for stock issued to employees (3,069,038) -- --
Amortization of deferred compensation 1,466,521 -- 1,466,521
Net loss -- (1,391,206) (1,391,206)
----------- ----------- -----------
Balance, December 31, 1999 (1,602,517) (1,262,774) 2,208,311
The following information is unaudited:
Repurchase of common stock from employees -- -- 4,020
Deferred compensation for stock issued to employees (9,211,591) --
Amortization of deferred compensation 2,155,070 -- 2,155,070
Net loss -- (2,420,533) (2,420,533)
----------- ----------- -----------
Balance, June 30, 2000 (unaudited) $(8,659,038) $(3,683,307) $ 1,946,868
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 7
ASTROTERRA CORPORATION
Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended December 31, Six Months Ended June 30,
------------------------------------------- ---------------------------
1997 1998 1999 1999 2000
----------- ----------- ----------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 64,932 $ (211,710) $(1,391,206) $ (291,830) $(2,420,533)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 47,825 45,929 83,284 42,618 129,506
Deferred income taxes -- (3,925) (21,521) (22,245) --
Non-cash employee stock
compensation -- 318,948 1,466,521 463,725 2,155,070
Changes in assets and
liabilities:
Accounts receivable 302,165 (301,519) (129,848) (492,346) (368,814)
Inventories (373,023) 145,435 (354,439) (255,393) (834,383)
Prepaid expenses and other (519) (9,576) (54,254) 9,716 35,750
Refundable and deferred income taxes -- -- (26,998) -- (21,500)
Other assets -- (1,000) (55,478) (17,115) (9,545)
Accounts payable 23,346 (48,478) 200,835 112,395 12,419
Accrued expenses 72,661 48,643 37,287 (124,477) (22,378)
Income taxes payable (16,601) 69,981 (71,981) 43,834 --
Deferred revenues -- 17,239 70,137 (10,548) 211,521
----------- ----------- ----------- ----------- -----------
Net cash
provided by (used in)
operating activities 120,786 69,967 (247,661) (541,664) (1,132,887)
----------- ----------- ----------- ----------- -----------
Net cash used in investing activities:
Purchases of property and equipment (79,269) (39,219) (327,278) (60,615) (268,242)
----------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Net (repayments) borrowings
on line of credit 127,292 (127,292) -- -- 136,000
Borrowings on non-revolving credit
facility -- -- -- -- 182,000
Proceeds from issuances of
common stock -- 546,994 1,113,827 -- --
Payments for repurchases of
common stock -- (5,000) (46,205) (46,205) 4,020
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in)
financing activities 127,292 414,702 1,067,622 (46,205) 322,020
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash
and cash equivalents 168,809 445,450 492,683 (648,484) (1,079,109)
Cash and cash equivalents,
beginning of year 85,308 254,117 699,567 699,567 1,192,250
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents, end
of year $ 254,117 $ 699,567 $ 1,192,250 $ 51,083 $ 113,141
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 8
ASTROTERRA CORPORATION
Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended December 31, Six Months Ended June 30,
-------------------------------------- ------------------------
1997 1998 1999 1999 2000
-------- -------- ---------- -------- ----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Non-cash activities:
Common stock issued for notes
receivable from stockholders $ -- $ 30,000 $ 4,020 $ -- $ --
======== ======== ========== ======== ==========
Repurchase of common stock
from employee in exchange
for notes receivable $ -- $ -- $ 30,000 $ 30,000 $ --
======== ======== ========== ======== ==========
Deferred compensation for
stock issued to employees $ -- $ -- $3,069,038 $ -- $9,211,591
======== ======== ========== ======== ==========
Supplemental cash flow
disclosures:
Cash paid during the year for:
Interest $ 1,462 $ 3,247 $ 259 $ 152 $ 6,911
======== ======== ========== ======== ==========
Income taxes $ 35,298 $ 32,000 $ 83,525 $ 60,742 $ 16,000
======== ======== ========== ======== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 9
ASTROTERRA CORPORATION
Notes to Financial Statements
December 31, 1999, 1998 and 1997 and for the Six Months Ended June 30, 2000 and
1999
1. Line of Business and Sale of Company
AstroTerra Corporation (the "Company") develops and manufactures
free-space optical laser communication systems to connect data and
telecommunications networks. The Company's optical communication systems
are practical high-speed wireless alternatives to fiber optic cable and
microwave systems. The Company also performs contract research and
development for the U.S. government and commercial customers.
During July 2000, the Company entered into a stock purchase agreement
with MRV Communications, Inc. ("MRV"), whereby MRV acquired the entire
share capital of the Company in an exchange for shares of MRV common
stock.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management
to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Interim Financial Statements
The accompanying consolidated financial statements for the interim
periods included herein are unaudited. Certain information and note
disclosures normally included in annual financial statements prepared in
accordance with accounting principles generally accepted in the United
States have been omitted, although the Company believes that the
disclosures made are adequate to make the information presented not
misleading. These unaudited financial statements reflect, in the opinion
of management, all adjustments (which include only normal recurring
adjustments) necessary to fairly present the results of operations,
changes in cash flows and financial position as of and for the periods
presented. The results for the interim periods presented are not
necessarily indicative of results to be expected for a full year.
Revenue Recognition
Product revenues are recognized upon shipment and transfer of title and
risk of loss to the customer.
Research and development contract revenues are recognized using the
percentage-of-completion method on a cost-to-cost basis. Contract costs
include all direct material and labor costs, and those indirect costs
related to contract performance. If a loss is projected on a contract,
the entire estimated loss is charged to operations during the period
that the loss becomes determinable.
Payments received from customers in advance of shipment of products or
performance of contract services are deferred and recognized upon
completion of the related obligations.
Research and Development Costs
Research and development costs are expensed as incurred.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investments with
original maturities of three months or less and consist primarily of
money market accounts.
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method and includes
materials, direct labor and manufacturing overhead.
Property and Equipment
Property and equipment are stated at cost and depreciated using an
accelerated method over the estimated useful lives of the assets,
ranging from 3 to 5 years. Maintenance and repairs are charged to
expense as incurred, and the
<PAGE> 10
costs of additions and betterments that increase the useful lives of the
related assets are capitalized. Upon retirement or disposal of assets,
the cost and related accumulated depreciation are removed from the
accounts and any gain or loss is reflected in operations.
Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever events
or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. If the sum of future undiscounted cash
flows expected to result from the use of the asset and its eventual
disposition is less than the carrying amount of the asset, an impairment
loss is recognized. In the opinion of management, there have been no
events or changes in circumstances that indicate impairment of the
Company's long-lived assets.
Income Taxes
Deferred income tax assets or liabilities are recognized based on the
temporary differences between financial statement and income tax bases
of assets and liabilities using enacted statutory tax rates in effect
for the years in which the differences are expected to reverse. Deferred
income tax expenses or credits are based on the changes in the deferred
income tax assets or liabilities from period to period. Valuation
allowances are established, when necessary, to reduce deferred tax
assets to the amount expected to be realized.
Fair Value of Financial Instruments
The carrying value of certain of the Company's financial instruments,
including accounts receivable, accounts payable and accrued expenses
approximates fair value due to their short term nature.
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting
for Stock-Based Compensation." The Company has elected, as permitted
under SFAS No. 123, to continue to account for stock-based employee
compensation using the intrinsic value method in accordance with
Accounting Principles Board Opinion No. 25 and to disclose pro forma net
income (loss) as if stock-based employee compensation were computed
using the fair value method under SFAS No. 123. Transactions with other
than employees, in which goods or services are the consideration
received for the issuance of equity instruments, are accounted for on a
fair value basis under SFAS No. 123. For the years ended December 31,
1997, 1998 and 1999 and for the six months ended June 30, 1999, the
differences between pro forma net income (loss) in accordance with SFAS
No. 123 and net income (loss) as reported in the accompanying statements
of operations was not material. There were no additional shares issued
to employees during the six months ended June 30, 2000.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities,"
which establishes accounting and reporting standards for derivative
instruments and hedging activities. SFAS No. 133 requires that an entity
recognize all derivatives as either assets or liabilities and measure
those instruments at fair value. SFAS No. 133 was amended by SFAS No.
137, which defers the effective date to all fiscal quarters of fiscal
years beginning after June 15, 2000. The adoption of SFAS No. 133 is not
expected to have a material effect on the Company's financial position
or results of operations as the Company has not been engaged in the use
of derivative instruments.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in
Financial Statements." SAB No. 101, as amended, must be adopted no later
than the fourth quarter of the fiscal year beginning after December 15,
1999. The Company does not anticipate the adoption of SAB No. 101 to
have a material impact on the Company's financial position or results of
operations.
<PAGE> 11
3. Components of Certain Balance Sheet Captions
Accounts receivable consists of the following:
<TABLE>
<CAPTION>
December 31, June 30,
---------------------- --------
1998 1999 2000
-------- -------- --------
(unaudited)
<S> <C> <C> <C>
Billed receivables $366,730 $415,905 $652,193
Costs incurred in excess of billings on 62,536 143,209 275,735
uncompleted contracts
-------- -------- --------
$429,266 $559,114 $927,928
======== ======== ========
</TABLE>
<PAGE> 12
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31, June 30,
-------------------------- -----------
1998 1999 2000
---------- ---------- -----------
(unaudited)
<S> <C> <C> <C>
Raw materials $ 27,774 $ 204,173 $ 438,275
Work in process 102,965 236,938 657,612
Finished goods 96,849 140,916 320,523
---------- ---------- ----------
$ 227,588 $ 582,027 $1,416,410
========== ========== ==========
</TABLE>
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31, June 30,
------------------------- -----------
1998 1999 2000
--------- --------- -----------
(unaudited)
<S> <C> <C> <C>
Machinery and equipment $ 230,415 $ 384,964 $ 621,934
Computers and software 21,780 121,169 121,169
Furniture and fixtures 4,387 18,646 49,918
--------- --------- ---------
256,582 524,779 793,021
Less: accumulated depreciation (199,582) (223,785) (339,146)
--------- --------- ---------
$ 57,000 $ 300,994 $ 453,875
========= ========= =========
</TABLE>
Depreciation expense for the years ended December 31, 1997, 1998 and
1999 totaled $47,825, $45,929 and $83,284 respectively. Depreciation
expense for the six months ended June 30, 1999 and 2000 totaled $42,618
and $115,361 respectively.
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
December 31, June 30,
---------------------- --------
1998 1999 2000
-------- -------- --------
(unaudited)
<S> <C> <C> <C>
Compensation and related taxes $286,000 $253,012 $257,318
Warranty reserve -- 33,500 33,500
Other -- 36,775 10,091
-------- -------- --------
$286,000 $323,287 $300,909
======== ======== ========
</TABLE>
<PAGE> 13
4. Income Taxes
Provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal $ 25,227 $ 79,341 $ 39,628
State 10,773 22,640 12,974
--------- --------- ---------
36,000 101,981 52,602
--------- --------- ---------
Deferred:
Federal -- (3,336) (18,293)
State -- (589) (3,228)
--------- --------- ---------
-- (3,925) (21,521)
--------- --------- ---------
Provision for income taxes $ 36,000 $ 98,056 $ 31,081
========= ========= =========
</TABLE>
Realization of deferred income taxes is dependent on generating
sufficient taxable income during the periods in which temporary
differences will reverse. Although realization is not assured,
management believes it is more likely than not that the deferred income
taxes will be realized. The amount of deferred income taxes considered
realizable, however, could be adjusted in the near term if estimates of
future taxable income during the reversal periods are revised.
Deferred income taxes consist of the following:
<TABLE>
<CAPTION>
December 31,
--------------------
1998 1999
------- -------
<S> <C> <C>
Accrued expenses $34,326 $58,569
Other 2,722 --
------- -------
Deferred income taxes $37,048 $58,569
======= =======
</TABLE>
Provision for income taxes reconciles to the expected provision
(benefit) for income taxes based on the federal statutory tax rate as
follows:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Expected federal income taxes $ 36,987 $ (41,313) $(462,443)
State income taxes, net of federal
benefit 6,527 (7,291) (81,608)
Employee stock compensation -- 127,579 586,608
Other (7,514) 19,081 (11,476)
--------- --------- ---------
Provision for income taxes $ 36,000 $ 98,056 $ 31,081
========= ========= =========
</TABLE>
<PAGE> 14
5. Credit Facilities
In May 1998, the Company obtained a $300,000 revolving line of credit
with a bank, bearing interest at the bank's prime rate plus 1.5% (10.0%
at December 31, 1999), collateralized by substantially all assets of the
Company and personally guaranteed by three majority stockholders of the
Company. No amounts were outstanding under the line of credit at
December 31, 1999 and 1998. The line of credit was terminated by the
Company during February 2000.
In February 2000, the Company entered into a $1,300,000 credit
agreement with a bank, consisting of a $1,000,000 revolving line of
credit and a $300,000 non-revolving credit facility for equipment
purchases. The credit agreement bears interest at variable rates based
on either the banks' reference rate plus 0.5% or LIBOR plus 2.75%, as
elected by borrower, is secured by substantially all assets of the
Company, and is subject to certain financial and non-financial
covenants. As of June 30, 2000, the Company had $136,000 outstanding
under the revolving line of credit and $182,000 outstanding under the
non-revolving credit facility for equipment purchases. The credit
agreement is collateralized by the assets of the Company. The credit
agreement contains certain covenants, which among other things requires
the Company to maintain a minimum effective tangible net worth, certain
financial ratios and no consecutive losses. As of June 30, 2000, the
Company was in default with certain financial covenants; therefore, the
components of the credit agreement are classified as short-term. The
credit agreement was terminated by the Company during August 2000 and
all amounts outstanding were repaid.
6. Stockholders' Equity
Capital Structure
The Company is authorized to issue up to 20,000,000 shares of common
stock, no par value. Common shares are voting shares with equal dividend
participation, when and if declared, and equal rights in the event of
liquidation.
Employee Stock Purchase Plans
In August 1997, the Company implemented a book value employee stock
purchase plan (the "Plan") and determined that 2,000,000 shares would be
made available for purchases. The Plan allowed each full time employee
with at least one year of service to purchase up to 2,000 shares of
common stock at book value per share, as determined by the board of
directors. Additionally, the board of directors determined that an
additional 500,000 shares of common stock would be made available for
purchases by key employees on a discretionary basis.
Under the Plan, the Company retains the option to repurchase shares sold
to employees upon their termination. If an employee leaves the Company
within a year after purchasing shares, the Company's repurchase price
per share is the original issuance price. If an employee leaves the
Company more than one year after purchasing shares, the Company's
repurchase price per share is the greater of the original issuance price
or current book value.
Discretionary shares sold to key employees carry terms determined by the
board of directors, and generally allow for employee vesting
(elimination of the Company repurchase option) over a period of four
years. Further, upon a substantial change in control of the Company or
employee termination without cause, the Company repurchase option
terminates.
Stock issued to employees under the above plans are accounted for using
the variable method of accounting in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," Emerging Issues Task Force Release ("EITF") No. 87-23, "Book
Value Stock Purchase Plans" and EITF No. 88-6 "Book Value Stock Plans in
an Initial Public Offering." Accordingly, outstanding shares under the
book value purchase plan are marked to book value per share during each
reporting period. Outstanding shares issued to employees on a
discretionary basis with vesting provisions (elimination of the
Company's repurchase option) are marked to fair value during each
reporting period. At the point when restrictions related to employee
shares lapse, any unamortized deferred compensation expenses are
recognized in operations.
Compensation expense for shares issued to employees during fiscal 1998,
1999 and the six months ended June 30, 1999 and 2000 totaled $318,948,
$1,466,521, and $2,155,070 respectively, and is included in the
accompanying statements of operations. As of December 31, 1999 June 30,
2000, deferred compensation included as a component of stockholders'
equity totals $1,602,517 and $8,659,038, respectively, and is expected
to be amortized in full during fiscal year 2000 as a result of the
acquisition of the Company by MRV (see Note 1).
Stock based compensation expense has been included in the accompanying
statement of operations as follows:
<PAGE> 15
<TABLE>
<CAPTION>
December 31, June 30,
-------------------------- --------------------------
1998 1999 1999 2000
---------- ---------- ---------- ----------
Allocation of compensation expense: (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Cost of revenues:
Products $ 3,844 $ 233,707 $ 73,900 $ 343,435
Contracts 40,144 574,645 188,865 468,355
Operating expenses:
Selling, general and administrative 273,382 627,199 198,325 921,678
Research and development 1,578 30,970 2,635 421,602
---------- ---------- ---------- ----------
Total stock-based compensation expense $ 318,948 $1,466,521 $ 463,725 $2,155,070
========== ========== ========== ==========
</TABLE>
7. Commitments and Contingencies
Operating Leases
The Company leases its facilities and certain equipment under operating
leases expiring at various dates through April 2002. The Company has the
right to terminate the lease with at least 120 days prior written notice
and has an option to renew the lease for an additional two years at a
rate increase of ten percent. Rent expense for the years ended December
31, 1997, 1998 and 1999 was $56,300, $81,089 and $127,746, respectively.
Rent expense for the six months ended June 30, 1999 and 2000 was $58,314
and $137,398, respectively.
Future minimum lease payments under operating leases are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31:
------------
<S> <C>
2000 $ 256,120
2001 246,352
2002 36,063
---------
$ 538,535
=========
</TABLE>
Legal Matters
In the ordinary course of business, the Company is subject to claims
and, from time to time, is named in various legal proceedings. In the
opinion of management, the amount of ultimate liability, if any, with
respect to any of these matters will not have a material adverse affect
on the financial position or results of operations of the Company.
8. Retirement Savings Plan
The Company maintains a 401(k) retirement savings plan that covers
substantially all of its employees. Eligible employees may contribute to
the plan subject to certain Internal Revenue Service limitations.
Company contributions to the plan are discretionary. During fiscal 1997,
1998 and 1999, the Company contributed $61,723, $82,823 and $77,907,
respectively. For the six months ended June 30, 1999 and 2000, the
Company contributed $22,020 and $67,323 respectively.
9. Concentrations of Risk
During fiscal 1997, 1998 and 1999, the Company had 7, 7 and 6 contracts,
respectively, with government agencies that accounted for 98%, 99% and
69% of contract revenues, respectively. Additionally, the Company had a
contract with a commercial customer that accounted for 31 percent of
contract revenues in fiscal 1999. During both of the six month periods
ended June 30, 1999 and 2000, the Company had 5 contracts with
government agencies that accounted for 73% and 100% of contract
revenues, respectively. Additionally, the Company had a commercial
customer that accounted for 27% of contract revenues for the six months
ended June 30, 1999.
During fiscal 1997, 1998 and 1999, 1, 3 and 1 customers represented 37%,
34% and 10% of product revenues, respectively. During the six months
ended June 30, 1999 and 2000, 3 and 1 customers represented 39% and 58%
of product revenues, respectively.
<PAGE> 16
Government agency contracts accounted for 43% and 63% of accounts
receivable at December 31, 1998 and 1999, respectively, and 36% and 14%
of accounts receivable at June 30, 1999 and 2000, respectively.
10. Segment Reporting
The Company operates in one industry segment, which includes developing,
manufacturing and selling free-space optical laser communications
systems to connect data and telecommunication networks. The Company
derives revenues in this segment from both product shipments and
research and development contracts. The accompanying statements of
operations separately reflect the revenues and cost of revenues for
products and research and development contracts.
<PAGE> 17
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
On July 12, 2000, MRV Communications, Inc. (MRV or the Company), completed
the acquisition of all of the outstanding capital stock of AstroTerra
Corporation (AstroTerra), a California corporation, in exchange for
approximately 1.6 million shares of MRV's common stock and approximately 809,000
stock options to purchase shares of MRV's common stock. MRV's management has
prepared the following unaudited pro forma condensed consolidated financial
information to give effect to this acquisition. The Unaudited Pro Forma
Condensed Consolidated Statement of Operations for the year ended December 31,
1999 and for the six month period ended June 30, 2000 give effect to the
AstroTerra acquisition as if the acquisition had taken place at the beginning of
each period. The Unaudited Pro Forma Condensed Consolidated Balance Sheet as of
June 30, 2000 gives effect to the AstroTerra acquisition as if the acquisition
had taken place on such date.
The pro forma adjustments, which are based upon available information and
certain assumptions that the Company believes are reasonable in the
circumstances, are applied to the historical financial statements of MRV and
AstroTerra. The AstroTerra acquisition will be accounted for using the purchase
method of accounting. MRV's allocation of purchase price is based upon
management's current estimates of the fair value of assets acquired and
liabilities assumed in accordance with Accounting Principles Board No. 16. The
purchase price allocations reflected in the accompanying unaudited pro forma
condensed consolidated financial statements may be different from the final
allocation of the purchase price, however, management does not believe any
material differences will result. The Company expects to complete a valuation
and other procedures during the fourth quarter of 2000.
The accompanying unaudited pro forma condensed consolidated financial
information should be read in conjunction with the historical financial
statements and the notes thereto for both MRV and AstroTerra. The unaudited pro
forma condensed consolidated financial information is provided for informational
purposes only and does not purport to represent what MRV's financial position or
results of operations would actually have been had the AstroTerra acquisition
occurred on such dates or to project MRV's results of operation or financial
position for any future period.
<PAGE> 18
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 2000
<TABLE>
<CAPTION>
MRV AstroTerra Pro Forma
(Amounts in thousands, except per share data) Communications Corporation Adjustments Total
-------------- ----------- ----------- -----
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 45,207 $ 113 $ -- $ 45,320
Short-term investments 3,427 -- -- 3,427
Accounts receivable 63,555 928 -- 64,483
Inventories 49,616 1,416 -- 51,032
Refundable and deferred income taxes 7,663 107 -- 7,770
Other current assets 5,872 29 -- 5,901
-------- ------- -------- --------
Total current assets 175,340 2,593 -- 177,933
-------- ------- -------- --------
Property and Equipment, net 48,497 454 -- 48,951
Other Assets:
Goodwill 321,764 -- 108,339(1) 430,103
U.S. Treasury notes 95,014 -- -- 95,014
Investments in partner companies 29,969 -- -- 29,969
Deferred income taxes 6,827 -- -- 6,827
Long-term stock investments 6,655 -- -- 6,655
Other assets -- 52 -- 52
-------- ------- -------- --------
Total assets 684,066 3,099 108,339 795,504
======== ======= ======== ========
Current Liabilities
Current maturities of capital lease obligation 1,097 -- -- 1,097
Line of credit -- 136 -- 136
Accounts payable 33,485 234 -- 33,719
Accrued liabilities 21,744 301 -- 22,045
Short-term debt 78,801 182 -- 78,983
Income taxes payable 714 -- -- 714
Deferred revenue 1,293 299 -- 1,592
-------- ------- -------- --------
Total current liabilities 137,134 1,152 -- 138,286
-------- ------- -------- --------
Long-Term Liabilities
Convertible debentures 90,000 -- -- 90,000
Capital lease obligations, net of current portion 1,589 -- -- 1,589
Deferred income taxes 1,213 -- -- 1,213
Other long-term liabilities 10,152 -- -- 10,152
-------- ------- -------- --------
Total long-term liabilities 102,954 -- -- 102,954
-------- ------- -------- --------
Minority Interests 2,599 -- -- 2,599
Stockholders' Equity
Preferred stock -- -- -- --
Common stock 128 1,689 (1,689)(1) 128
Additional paid-in capital 542,867 12,600 (12,600)(1)
160,286(1) 703,153
Treasury stock (133) -- (133)
Retained earnings (deficit) (51,991) (3,683) 3,683(1) (51,991)
Deferred compensation (40,795) (8,659) 8,659(1)
(50,000)(1) (90,795)
Cumulative translation adjustment (8,697) -- -- (8,697)
-------- ------- -------- --------
Total stockholders' equity 441,379 1,947 108,339 551,665
======== ======= ======== ========
Total liabilities and stockholders' equity $684,066 $ 3,099 $108,339 $795,504
======== ======= ======== ========
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information
<PAGE> 19
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
MRV AstroTerra Pro Forma
(Amounts in thousands, except per share data) Communications Corporation Adjustments Total
-------------- ----------- ----------- -----
<S> <C> <C> <C> <C>
-------- ------- -------- --------
Revenues, net $139,007 $ 2,675 $ -- $141,682
-------- ------- -------- --------
Costs and Expenses
Cost of goods sold 88,529 2,306 -- 90,835
Research and development 13,367 923 -- 14,290
Research and development of consolidated 13,282 -- 13,282
development stage enterprises
Selling, general and administrative expenses 41,481 1,872 18,000(3) 61,353
Amortization of goodwill and other intangibles 13,069 -- 10,834(2) 23,903
-------- ------- -------- --------
Operating (loss) (30,721) (2,426) (28,834) (61,981)
-------- ------- -------- --------
Interest expenses (2,803) (7) -- (2,810)
Other income, net 1,125 13 -- 1,138
Provision (credit) for income taxes 883 -- -- 883
Minority interest (332) -- -- (332)
-------- ------- -------- --------
Net (loss) $(33,614) $(2,420) $(28,834) $(64,868)
======== ======= ======== ========
Basic and diluted net loss per share $ (0.56) $ (1.04)
======== ========
Weighted average shares outstanding used in basic
and diluted per shares calculation 59,839 2,396 62,235
======== ======== ========
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information
<PAGE> 20
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
MRV AstroTerra Pro Forma
(Amounts in thousands, except per share data) Communications Corporation Adjustments Total
-------------- ----------- ----------- -----
<S> <C> <C> <C> <C>
-------- ------- -------- --------
Revenues, net $288,524 $ 4,651 $ -- $293,175
-------- ------- -------- --------
Costs and Expenses
Cost of goods sold 197,442 4,154 -- 201,596
Research and development 35,319 165 -- 35,484
Research and development of consolidated -- -- -- --
development stage enterprises
Selling, general and administrative expenses 71,757 1,698 28,700(5) 102,155
Amortization of goodwill and other intangibles -- -- 21,668(4) 21,668
-------- ------- -------- --------
Operating (loss) (15,994) (1,366) (50,368) (67,728)
-------- ------- -------- --------
Interest expenses related to convertible notes (4,500) -- -- (4,500)
Interest income, net 4,822 6 -- 4,828
Provision (credit) for income taxes (2,153) 31 -- (2,122)
Minority interest 610 -- -- 610
-------- ------- -------- --------
Net (loss) $(12,909) $(1,391) $(50,368) $(64,668)
-------- ------- -------- --------
Basic and diluted net loss per share $ (0.24) $ (1.15)
======== ========
Weighted average shares outstanding used in basic
and diluted per shares calculation 53,920 2,396 56,316
======== ======== ========
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information
<PAGE> 21
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following adjustments were applied to MRV's historical financial
statements and those of AstroTerra to arrive at the unaudited pro forma
financial information.
(1) The purchase price of AstroTerra and the estimated allocation of the
purchase price is summarized as follows (in thousands):
<TABLE>
<S> <C>
Common stock $109,286
Stock options 50,000
Other costs 1,000
--------
$160,286
--------
Allocation of purchase price -
Net assets $ 1,947
Deferred Compensation 50,000
Goodwill and other intangibles 108,339
--------
$160,286
========
</TABLE>
(2) The pro forma adjustment is to record the amortization of goodwill related
to the acquisition as if the transaction occurred on January 1, 2000. Goodwill
recorded in relation to this acquisition was approximately $108.3 million and is
being amortizated on a straight-line basis over 5 years or approximately $10.8
million for the six month period ended June 30, 2000
(3) The pro forma adjustment is to record deferred stock compensation related to
the acquisition as if the transaction occurred on January 1, 2000. Deferred
stock compensation recorded in relation to this acquisition was approximately
$50.0 million and is being amortized using the graded method over 4 years or
approximately $18.0 million for the six month period ended June 30, 2000
(4) The pro forma adjustment is to record the amortization of goodwill related
to the acquisition as if the transaction occurred on January 1, 1999. Goodwill
recorded in relation to this acquisition was approximately $108.3 million and is
being amortizated on a straight-line basis over 5 years or approximately $21.7
million for the year ended December 31, 1999
(5) The pro forma adjustment is to record deferred stock compensation related to
the acquisition as if the transaction occurred on January 1, 1999. Deferred
stock compensation recorded in relation to this acquisition was approximately
$50.0 million and is being amortized using the graded method over 4 years or
approximately $28.7 million for the year ended December 31, 1999.
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, hereunto duly authorized.
Date: September 22, 2000
MRV COMMUNICATIONS, INC.
By: /s/ EDMUND GLAZER
---------------------------------
Edmund Glazer
Vice President Finance and
Administration and Chief
Financial Officer
